Lobbyists rally against closing tax loopholes

Published
7:00 pm CDT, Sunday, May 11, 2003

Lobbyists representing law firms, business owners, real estate investors and oil producers are battling an attempt to plug a loophole that Texas companies are increasingly using to avoid paying the franchise tax, which is similar to an income tax.

Gov. Rick Perry, Lt. Gov. David Dewhurst and Comptroller Carole Keeton Strayhorn favor closing the loophole, but business lobbyists have succeeded so far in putting up enough hurdles to stall the attempt, jeopardizing millions of dollars in revenue needed by budget writers.

"We're talking about taxing people who've avoided this tax for Lord knows how long," said Rep. Ron Wilson, D-Houston, chairman of the Ways and Means Committee and author of a bill to broaden the tax and keep business from dodging it.

"It scares them half to death. And they are particularly more able to protect themselves in this process than anyone else. … They are the status quo," Wilson said in a story in Monday's editions of The Dallas Morning News.

The state franchise tax applies to corporations, but not to other forms of businesses, such as partnerships. Over the past decade, many corporations have escaped paying the tax by creating subsidiaries in other states, such as Delaware, which has the effect of making them a partnership in Texas.

Some of the state's best-known business names have restructured themselves that way, including SBC Communications, Dell Computer Co., Blue Bell Creameries and Luby's, and several companies owning major newspapers, including the parent company of The Dallas Morning News.

Lawmakers are looking for ways to deal with a projected $9.9 billion shortfall. It's estimated that closing this loophole could raise between $300 million and $400 million.

The governor and other Republican leaders have pledged not to raise taxes, but Perry has given the OK to expanding the franchise tax.

"In my book, it's not a new tax if you should have been paying it all along," the governor said in his State of the State address in February.

Unlike Perry, Dewhurst and Strayhorn, House Speaker Tom Craddick has not lined up behind the effort.

Craddick said he's not sure the so-called Delaware sub loophole can be fixed without harming long-exempt partnerships.

Strayhorn favors not only ending the Delaware sub loophole, but making sure other tax dodges tried in other states don't replace it, Deputy Comptroller Billy Hamilton said.